What happened

Despite the roaring bull market on Monday, shares of cancer diagnostics specialist Guardant Health (NASDAQ:GH) fell dramatically. There was little mystery as to why this occurred.

So what

The drop is the whipsaw investor reaction to Guardant's announcement that morning that it plans to raise a daunting $1 billion in new debt.

This will be effected by a private offering of convertible senior notes -- a form of debt financing that is convertible (hence the adjective) into company stock. 

Cancer attacking a cell.

Image source: Getty Images.

If not converted, the notes will mature on Nov. 15, 2027. They will accrue interest on a semiannual basis, in arrears.

Guardant said that the notes' interest rate, their conversion rate, and other terms will be set when the issue is priced. It provided no time frame for this. The company did say that under certain conditions it will have the right to redeem the notes, in whole or in part, for cash starting Nov. 20, 2024.

Now what

Guardant will use the proceeds of the issue to work some financial engineering that should help reduce potential shareholder dilution in the case of potential conversions. The monies will also be directed to increases in the healthcare company's research and development, and sales and marketing initiatives.

Investors are clearly worried that the resulting debt load and/or stock dilution will damage the value of their holdings. The burden will be on Guardant to prove that its beefed-up R&D and sales/marketing efforts are going to be worth their cost.

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